About this fund

Robeco Financial Institutions Bonds mainly invests in subordinated euro-denominated bonds issued by financial institutions. The selection of these bonds is based on fundamental analysis. The fund offers a diversified exposure to banks and insurance companies. Focus of the fund is in general towards higher rated issuers (investment grade).

The value of the investments may fluctuate. Past performance is no guarantee of future results.Annualized (for periods longer than one year).Cumulized (total amount of return).Performances are gross of fees and based on closing values. In reality, costs (such as management fees and other costs) are charged. These have a negative effect on the returns shown.Performances are net of fees and based on transaction prices.

Fund

Reference index

The value of the investments may fluctuate. Past performance is no guarantee of future results.Annualized (for periods longer than one year).Cumulized (total amount of return).Performances are gross of fees and based on closing values. In reality, costs (such as management fees and other costs) are charged. These have a negative effect on the returns shown.Performances are net of fees and based on transaction prices.

Performance explanation

Based on transaction prices, the fund's return was 1.28%. The portfolio posted a positive return in July, which was below the return of the index. The average credit spread of the index tightened from 197 basis points to 182 basis points during the month. This means that the excess return of subordinated financial bonds over government debt amounted to 1.01% in July. Underlying government bond yields declined during the month, contributing positively to the portfolio’s return. The beta of the portfolio was a bit above one during the month. This top-down positioning made a positive contribution to the performance of the portfolio. We did not change the beta positioning during the month. The contribution of issuer selection in July was negative. Looking at individual names, the best performers on a risk-adjusted basis were bank Tier 2 bonds. Outperformers in the portfolio were, for instance, Tier 2 bonds of KBC, ING and Svenska Handelsbanken. Bank CoCos underperformed on a risk-adjusted basis, implying that our off-benchmark holdings in this category contributed negatively.

Market development

Credit spreads continued to tighten in July, mainly driven by the dovish stance of central banks and the continued search for yield in a world of ever more negative yields. On the very last day of the month, the Fed delivered the first 25 bps rate cut in more than a decade. This rate cut had already been signaled in the weeks before the FOMC meeting and some market participants were hoping for an even higher cut of 50 bps. President Trump is still the biggest advocate for more and bigger cuts. In Europe, the ECB also announced a dovish message at the July press conference, hinting at an upcoming rate cut, a restart of QE and deposit tiering. The latter instrument is meant to help Northern European banks, having excess deposits that are currently yielding -0.40% at the ECB.The fundamental macro environment has not improved in the last month. Brexit risk is rising again, after new UK Prime Minister Boris Johnson hinted at a hard Brexit. Especially in the last week of the month, bond spreads of UK banks started to widen again. The spread between Italian and German government bonds tightened 55 basis points until the middle of July, but widened 15 basis points in the last two weeks.

Currency policy

Derivative policy

Robeco Financial Institutions Bonds fund make use of derivatives for hedging purposes as well as for investment purposes. These derivatives are very liquid.

Dividend policy

This share class of the fund does not distribute dividend.

ESG Integration policy

Our analysis of issuers goes beyond the traditional financial factors and includes the issuers’ performance on ESG factors. We deem it essential for a well-informed investment decision to take into account those ESG factors that have the potential to materially impact the financial performance of the issuer. This perfectly matches the basic need to avoid the losers in credit management, as many credit events in the past can be attributed to issues such as poorly designed governance frameworks, environmental issues, or weak health & safety standards. The aim of ESG integration is to improve the risk/return profile of the investments and does not have an impact goal. ESG analysis is fully integrated in the bottom-up security analysis. We have defined key ESG factors per industry, and for every company we analyze how the firm is positioned versus these key ESG factors, and how this impacts the fundamental credit quality.

Investment policy

Robeco Financial Institutions Bonds mainly invests in subordinated euro-denominated bonds issued by financial institutions. The fund offers a diversified exposure across 50-60 issuers, including the new style hybrid bonds that are being issued on the back of Basel III regulation. Focus of the fund are higher rated bonds (investment grade) with a tilt to Tier 2 bonds. The fund aims to outperform its index Barclays Euro-Aggregate: Corporates Financials Subordinated 2% Issuer Cap. The index applies an issuer cap to avoid concentration risk. The investment philosophy is based on managing a solid diversified portfolio with a long term view. Top-down beta positioning is based on the outcome of our credit quarterly outlook meeting, in which the team is discussing the fundamental market outlook, valuation of bond markets and market technicals. Bottom-up issuer research is executed by our credit analysts, who execute the fundamental analysis. The portfolio managers are responsible for the portfolio construction. A proprietary developed risk management approach avoids high risk concentration in the portfolio. As the investment process is well-structured and proven over time, it contributes to repeatable performance delivery. Duration of the portfolio is managed in line with the index and currency exposure is hedged.

Expectation of fund manager

We have reduced the size of the credit overweight in the portfolio in the last few months, though we kept our positive view on the fundamental credit quality of the financial sector. The low yield environment is in itself not helpful for financials and this is for instance reflected in the share price performance of the banking sector. But banks and insurance companies have been dealing with the low interest rate environment for a number of years already. We think that pressure on net interest margins is more of a concern to shareholders than to bondholders. For the next few months, we expect that central banks will be the most important driver for credit spreads. The odds of a second round of corporate bond buying by the European Central Bank has increased and this will force investors to take more credit risk. We expect that higher yield bonds like subordinated financial debt will benefit from a renewed search for yield.

Jan Willem de Moor

Jan Willem de Moor

Mr. de Moor is a Senior Portfolio Manager and a member of the Credit team. Prior to joining Robeco in 2005, Mr. de Moor was employed by SBA Artsenpensioenfondsen as Senior Portfolio Manager Equities for six years. Before that, he worked at SNS Asset Management holding positions of Portfolio Manager Equities (three years) and Research Analyst (two years). Jan Willem de Moor started his career in the Investment Industry in 1994. He holds a Master's degree in Economics from Tilburg University.

Team

The Robeco Financial Institutions Bonds fund is managed within Robeco’s credit team, which consists of nine portfolio managers and twenty-three credit analysts (of which four financials analysts). The portfolio managers are responsible for the construction and management of the credit portfolios, whereas the analysts cover the team’s fundamental research. Our analysts have long term experience in their respective sectors which they cover globally. Each analyst covers both investment grade and high yield, providing them an information advantage and benefiting from inefficiencies that traditionally exist between the two segmented markets. Furthermore, the credit team is supported by dedicated quantitative researchers and fixed income traders. On average, the members of the credit team have an experience in the asset management industry of seventeen years, of which eight years with Robeco.

Cost of this fund

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Transaction costs

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Fiscal product treatment

The fund is established in Luxembourg and is subject to the Luxembourg tax laws and regulations. The fund is not liable to pay any corporation, income, dividend or capital gains tax in Luxembourg. The fund is subject to an annual subscription tax ('tax d'abonnement') in Luxembourg, which amounts to 0.05% of the net asset value of the fund. This tax is included in the net asset value of the fund. The fund can in principle use the Luxembourg treaty network to partially recover any withholding tax on its income.

Fiscal treatment of investor

The fiscal consequences of investing in this fund depend on the investor's personal situation. For private investors in the Netherlands real interest and dividend income or capital gains received on their investments are not relevant for tax purposes. Each year investors pay income tax on the value of their net assets as at 1 January if and inasmuch as such net assets exceed the investor’s tax-free allowance. Any amount invested in the fund forms part of the investor's net assets. Private investors who are resident outside the Netherlands will not be taxed in the Netherlands on their investments in the fund. However, such investors may be taxed in their country of residence on any income from an investment in this fund based on the applicable national fiscal laws. Other fiscal rules apply to legal entities or professional investors. We advise investors to consult their financial or tax adviser about the tax consequences of an investment in this fund in their specific circumstances before deciding to invest in the fund.

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